1. Banking Sector and Foreign Banks in Turkey Ekrem Keskin December 2008

2. Banking sector and foreign banks in Turkey, December 08 1 Content Change in economic environment and impact on the banking sector Selected figures; comparison of sector and foreign- owned banks Recent issues

3. Banking sector and foreign banks in Turkey, December 08 2 Change in economic environment

4. Banking sector and foreign banks in Turkey, December 08 3 Savings gap widened, mainly due to the private sector as the public sector improved its balance

5. Banking sector and foreign banks in Turkey, December 08 4 In private sector, savings rate declined rapidly as fixed investment rate accelerated due to investments in new technology and expanding capacity

6. Banking sector and foreign banks in Turkey, December 08 5 The share of external borrowing in fixed capital investment

7. Banking sector and foreign banks in Turkey, December 08 6 Jump in net capital inflow from an annual averege of USD 3 billion in the 90’s to USD 50 billion in 2008 September

8. Banking sector and foreign banks in Turkey, December 08 7 Private sector increased its borrowing from external markets

9. Banking sector and foreign banks in Turkey, December 08 8 High growth performance: Stable and strong growth, over the long term average of 4.3% between 2002 and 2007 before a steady slowdown in 2008.

10. Banking sector and foreign banks in Turkey, December 08 9 Rapid disinflation: Inflation has declined to the historically lowest level during the free market economy, although it’s decending trend halted recently and has reversed slightly.

11. Banking sector and foreign banks in Turkey, December 08 10 Substantial fiscal adjustment: One of the main reasons behind the positive outcomes was the tight fiscal policy which led to a substantial decline in PSBR and budget deficit

12. Banking sector and foreign banks in Turkey, December 08 11 Reduced public sector debt...

13. Banking sector and foreign banks in Turkey, December 08 12 As the public sector borrowed less, loans to private sector soared

14. Banking sector and foreign banks in Turkey, December 08 13 Stronger shareholders’ capital and free capital enabled the banking sector to change its risk structure...

15. Banking sector and foreign banks in Turkey, December 08 14...from the public to private sector risks

16. Banking sector and foreign banks in Turkey, December 08 15 Capital adequacy ratio remained rather above the level of BRSA’s regulation

17. Banking sector and foreign banks in Turkey, December 08 16 Well-diversified loan portfolio

18. Banking sector and foreign banks in Turkey, December 08 17 Higher ROE but is sufficient enough?

19. Banking sector and foreign banks in Turkey, December 08 18 Higher risks, lower ROE

20. Selected figures; comparison of the sector and foreign-owned banks

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27. Banking sector and foreign banks in Turkey, December 08 26 Main issues in economy: Uncertainties in international environment Reliance on external borrowing Difficulties of financing of balance of payments Pressures on fx liquidity Contraction in economic activity Rising costs of financing of private sector High degree of currency substitutions Ownership changes in banks in Europe

28. Banking sector and foreign banks in Turkey, December 08 27 Maturity structure of balance sheet up to 3 mthsup to 6 mths Loans29%55% Deposits90%94% Lack of information of recent position of clients Slowdown in loans Rising capital or limiting risks? Prospective level of capital adequacy NPLs Interest rate risks Earning pressures to feed capital

29. Banking sector and foreign banks in Turkey, December 08 28 Thank you.

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